A Wealthy Start

Building Generational Wealth Early

The lack of financial literacy education is dangerous

Teach your children about financial literacy today. The burden is on parents to teach their children financial literacy because they will not learn it anywhere else. Most schools don’t teach financial literacy. Financial literacy is not one of the four core subject areas, although it should be. Financial literacy provides future sustainability and a jumpstart towards financial success.

Financial institutions are not focused on teaching children financial literacy either. With minimal outside support, children raised in financially illiterate households face an uphill unfair battle.

It’s time to break the cycle

The good news is the cycle of poor financial literacy can be broken just like the cycle of poverty can be broken in the same way—through education and proper preparation. When you think of breaking the cycle of poverty, think of all the possibilities and financial freedom that your family will endure for generations to come.

In the book Rich Girl Code we discuss ways to break the poverty chain and ways to lay the proper foundation for generational wealth. But it first comes down to changing the way you think.

We need to begin sharing the knowledge with one another and helping each other learn, earn, and grow. If we all “share the wealth” we can all live healthy wealthy lives. Just think about how wonderful it would be if your family, friends, and community began using the tools and resources you learned about through financial literacy. It would shift the entire wealth system and provide a means of sustainability, positivity, and longevity for generations to come, breaking the chains of generational poverty.

Focus on producing, not consuming

For many Americans, a financial disaster is just a paycheck away. According to the Federal Reserve, as of 2017, 40% of Americans surveyed did not have enough cash on hand to cover a $400 emergency. Of those respondents, many said they would cover the expense by using a credit card or borrow from friends or family. How did this 40% of Americans get here, and how can they get out of it? The answer is financial literacy.

The first step to financial literacy is understanding money. For far too many Americans, money is simply a medium of exchange. If you want something, you hand over money. If you want money, you offer your services to an employer in exchange for money. If you want more stuff, you work more hours or get another job. The problem is many people continually expand their basket of needs and wants to match their income— spending everything they make. Some even spend more than they make by taking out consumer debt.

The problem with how the financially illiterate treat money is by viewing it through the only lens they know: as a consumer. The financially literate, on the other hand, view money through the lens of a producer. To consumers, money is a commodity—only good for buying things. To those with a producer’s mindset, money is a productive asset, one that can be put to work to make money for them in their sleep. Hustle while you sleep.

The rooster vs. the hen theory

This is a great example to use when teaching kids about money:

If you had a choice between a rooster and a hen, which would you choose? Your chicken comes with a month’s supply of food, but after that, you’re responsible for its food. If you’re like most kids, you’ll choose the rooster because it looks and sounds cool. Who wants a plain old-looking hen who just clucks?

Kids who choose the rooster run into a common problem. They don’t keep track of how much food they’re giving the rooster and burn through the initial month’s supply early. The rooster owners kick into panic mode. Unless they find a way to come up with more food, they will have to give their rooster away to someone who can afford to feed it. The rooster now rules their lives as they scramble to find more money to buy food. They have three choices:

  1. Take on more chores to earn more money.
  2. Start begging friends and family members for money.
  3. Borrow money from a sibling at an exorbitant interest rate.

None of the alternatives are pleasant.

The kids who choose a hen choose it for one specific reason: The hen lays eggs, which can be sold to the neighbors for money that can be used to buy food. And after taking care of the hen’s food, the young owners even have a little money left over. What do these kids do with the extra money? They don’t just go out and spend it. No, they reinvest the money to buy more hens (Entrepreneurial mindset). They may even diversify down the road and buy a dairy cow for its milk. Eventually, the hen owners will be able to hire other kids to take care of the hens, freeing up their time to do whatever they wish.

There are several important lessons the financially illiterate can learn from this object lesson:

  • Making your money work for you will eventually free you from having to work for money.
  • Spending money on things for show will only suck more and more money from your pocket down the road.
  • Taking any extra money you make and reinvesting that money will help you achieve that freedom from a time clock even sooner.
  • Sacrificing today makes for a much better tomorrow.

Making money work for you

What do you call money that works hard for you—that works 24/7? Passive income. Once you generate enough passive income to meet your financial needs, you will no longer have to rely on your day job to meet your financial obligations. You will no longer depend on a paycheck. This is what people consider financial independence. What gets lost in this whole discussion is that there is more than one way to accelerate the timeline for achieving financial freedom:

  1. You can close the gap by increasing passive income streams.
  2. Reduce your expenses.
  3. A combination of both.

At the end of the day, what do I think are the most important habits someone can adapt to break the cycle of poor financial decision-making?

  • Educate yourself. Seek out knowledge and learn about investing and wise financial decision-making.
  • Treat money through a producer’s lens, not a consumer’s. Make your money work hard for you instead of the other way around.
  • Live within your means. Don’t spend to be seen. Spend to be free. Save what you don’t spend for reinvestment.

So, which will you choose—the rooster or the hen? Stop working for your money and instead let your money work for you through the ways listed above. Do this and you’ll be able to turn your savings into passive income—thinking like a producer rather than a consumer.

Bonus Podcast: “The Development Of A Boss”